Budget 2011: Aviva backs Government stamp duty measures

Aviva has backed Government measures to reform tax on bulk residential
property deals as "unequivocally positive", boosting hopes that it
could spark a wave of institutional investment into the private rental
sector.

In the Budget, George Osborne said stamp duty on the purchase of more than one property will now be calculated by the average value of the properties, not the bulk value.Photo: GETTY

The real estate arm of Aviva Investors is understood to have been working on a £1bn fund to invest in housing for at least a year, but progress in such funds has been dogged by concerns about the cost of stamp duty.

However, in the Budget, George Osborne said stamp duty on the purchase of more than one property will now be calculated by the average value of the properties, not the bulk value, which the industry has campaigned for.

David Skinner, investor strategy and research director at Aviva Investors real estate, said: "On the surface this looks unequivocally positive. If transactions costs are being reduced then this increases the attractiveness of the sector."

According to the British Property Federation, a £1bn fund could deliver 5,000 new homes. It is understood that other institutions and pension funds who have eyed the sector are Aegon, Terrace Hill, Legal & General, and LaSalle Investment Management. Property agent CBRE has estimated that institutional investors have allocated £7.5bn for residential property.

The Chancellor also unveiled proposals to make it easier for institutions to place residential portfolios into tax-efficient real estate investment trusts. He believes an expansion of the private rental sector can solve Britain's housing shortage.

The changes to tax are a boost to Grainger, the UK's largest listed residential landlord. Shares in the company rose 7pc yesterday as investors digested the proposals. Nick Jopling, executive property director, said: "The changes could even make residential property in the UK an international asset class as it is in the Northern Europe and the USA."

However, a source at one of the largest fund managers warned: "We remain to be convinced that residential can play a major role in UK institutional property investment, and there's nothing in the announcement to change that. A bigger issue would be the level of admin involved, relative to revenue."